Equity Markets Record Losses in 2Q06

August 2, 2006 (PLANSPONSOR.com) - Mercer Investment Consulting's second-quarter 2006 Defined Contribution Universe Summary reports losses in most equity markets.

According to a Mercer IC press release, the S&P 500 Index declined 1.4% and the fixed income asset class benchmark, Lehman Aggregate, posted a 0.1% loss. The balanced asset class, which uses a benchmark of 60% S&P 500/40% Lehman Aggregate, posted a loss of 0.9% for the quarter.

International equity markets, represented by the MSCI EAFE Index, gained 0.7% during the quarter, according to the release. The international equity asset class outperformed US equities for the quarter by 2.1%. The MSCI World Index lost 0.5% for the quarter and underperformed international equities by 120 basis points.

Over a 10-year period, the S&P 500 Index returned 8.3%, while international equity markets produced a smaller gain of 6.4%. The fixed income asset class produced a return of 6.2% over a 10-year period.

For the second quarter of 2006, the median large cap value fund posted a loss of 0.1%, compared to a loss of 4.4% for the median large cap growth fund, according to Mercer IC data. The small cap segment of the market saw a similar trend, as the median small cap value fund outperformed the median small cap growth fund 330 basis points. Small cap funds underperformed their large cap counterparts, as the median small cap fund lost 4.3% for the quarter versus a loss of 2.1% for the median large cap fund.

The median large cap fund underperformed the S&P 500 Index for the second quarter by 70 basis points. In the international equity asset class, the median manager underperformed the index by 140 basis points during the quarter, while the median emerging markets manager lost 5.1% for the quarter and underperformed the index by 80 basis points. The median core fixed income fund underperformed the index by 10 basis points for the quarter.

Mercer IC attributes the market decline to investor worries about the threat of higher inflation and the Federal Reserve’s response, as well as concerns as to whether corporate profits will meet expectations. High oil prices, a slowing housing market and signs of employment growth affected investor decisions, according to Mercer IC.